In case you missed it, HBR.com has a good piece on BMW’s “venture client” corporate VC model that’s worth the time to read. Some highlights:

Based on his own experience, a reading of the emerging research, and dozens of conversations, Gimmy was convinced that the innovation impact of corporate VCs had been disappointing not because external startups do not have value to offer to large companies — after all, startups often develop precisely the sort of innovative solutions that large incumbents need the most — but because they could not master critical requirements to meet strategic innovation goals, three of which are particularly essential:

First, his time in Silicon Valley had shown Gimmy that corporate VCs and accelerators struggle to lure the best startups from private venture capitalists. Talented founders know that corporations simply cannot replicate the deep experience private VCs have in starting companies, nor their expertise in assisting startups with complex challenges such as deal making, business modeling, resolving disputes among founders, executing a successful IPO, and so on. In addition, top startups are heavily oversubscribed, and competition to get into a deal is fierce. Finally, corporate VCs are unable to pitch the promise of a self-fulfilling prophecy the way successful private VCs can. As a result, top founders prefer independent, noncorporate accelerators, and, to date, no corporate accelerator has truly accomplished incubating world-class startups.

Second, against all hope, CVC&A have inherent difficulties with regard to innovation transfer and integration. Only around 20% of technologies funded by CVC&A grab enough attention of business units to start co-innovation pilot projects with portfolio startups.

Third, corporate VCs and accelerators are costly and complex to operate, turning them into a slow and expensive innovation tool. Our research — more than 60 in-depth interviews with executives at large corporations and founders of startups as well as numerous innovation projects with large and midsize companies — shows that it takes at least 12 months between the first touchpoint of the CVC with a startup and the kick-off of a pilot with the business unit. And the fixed cost from “touchpoint-to-pilot” are immense. For example, in the case of a $100 million CVC fund, which can close five to 10 investments a year, these costs typically range from $1 to $2 million per startup — not including the administrative and variable costs of the pilot itself.

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To find out, Gimmy and Meyer designed the new organizational unit with a set of processes and a startup program based on the venture client model. The idea was to identify and collaborate with early stage startups — usually young VC-backed companies with a functional prototype but no track record or business model. The two managers secured buy-in from top BMW R&D executives to launch such a unit, and they received top-management approval for the unit in July 2014. Everyone understood that being the flagship client for startups at this stage in their development would attract top startups and give BMW first access to cutting-edge technology, product customization advantages, time-to-market, and pricing, while reducing the risk profile of traditional corporate venturing. Obviously, such “venture client” collaboration was possible at BMW before the launch of that unit, but it was lengthy and cumbersome due to complex administrative barriers.

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The initiative is still young, but this is only one of many early signs of success: More than 1,000 startups have been evaluated since the launch of the program in 2015, and BMW expects this figure to grow to over 2,000 per year, with more than 80% coming from outside Germany. By summer 2017, 90% of accepted startups have met BMW expectations and are continuing to grow their business with BMW.

Starting as a new pilot innovation unit, the BMW Startup Garage grew organically to include startups for all BMW divisions (including services, IT, manufacturing, and HR). The model is also showing important synergies with BMW iVentures, as it lowers the investment risk and keeps deals moving. Moreover, it has been highly praised by startups, VCs, and the media. The number of startups assessed and transferred has increased over 300% in the first two years. Other large corporations are starting to adopt the venture client model, among them Daimler, Viessmann, a multinational tire company, and a major construction business.